Saturday, March 24, 2007

Singapore - En bloc madness and Economics 101

I had an economics professor in university who put a single question on a mid-term exam. What is the most effective way of destroying a city - carpet bombing or rent controls?

Singapore has managed to come up with a third alternative - the abrogation of private property rights through the forced sale of one's home. The governing law for all this is referred to as en bloc sales.

I have already written about the disruption and waste caused when developers, real estate agents and speculators are allowed to force the sale and destruction of buildings.

I can now also confirm that the economic theory which predicts that investment will cease when returns are no longer certain holds as well. Whether it is rent controls which cause landlords to stop investing in their buildings, or en bloc sales, the result is the same. Perfectly good buildings are being allowed to deteriorate because owners are afraid to invest in case they are forced to sell before they can recoup their money.

The evidence is clear to anyone who is trying to rent an apartment. If there is any chance the building can be forced en bloc, landlords are simply refusing to do any upgrading or repairs. I have been offered apartments in otherwise desirable buildings at very low rents, as long as I am willing to take the apartment as is.

Most of these apartments are coming off lease, and the landlord would normally do a full renovation.

Not any more.

When is the Singapore government going to admit that they made a mistake and that en bloc sales have gone out of control? The number of apartments destroyed in the Orchard area has now exceeded 4,000, and new en bloc sales are announced weekly.

This will eventually stop on its own of course - when all the buildings have been torn down.





15 comments:

Bart JP said...

Hi,

I am a PhD student (economics), I don't quite see your point.

En bloc is not about the State taking away private property. It is about majority rule in an estate. I don't see how property rights are not respected. People buy into condo estates, knowing full well that if the majority want en bloc, they would have to acquiese. Doesn't Coase law hold here? The right to exercise decision on the estate is turned to the majority. Where is the social loss?

Maybe I am not seeing it quite well. Hope to hear your views.

Regards.

Waleed Hanafi said...

You seem to have accepted that having other people vote on your private property is normal. It is not. The whole concept of private property is destroyed when, through legislation, the government permits others to force you to sell against your will.

A new buyer may be aware of en bloc rules, but someone who purchased before the new law was passed is definitely having their private property rights trampled on.

I am not discussing the social benefits or costs of any particular en bloc. The fundamental principle of the right to hold and control private property is removed under en bloc sales.

To take it to its absurd ends, would you be so sanguine about the whole issue if the same rules applied to your clothing or stereo? Should we all vote on your personal possessions to decide if you should be permitted to keep them?

I would also be interested to know how you see the investment issue being resolved under the current rules. The evidence on the ground is not pretty.

Bart JP said...
This comment has been removed by the author.
Bart JP said...
This comment has been removed by the author.
Waleed Hanafi said...

You are confusing condominium rules with property rights.

If you do a quick search (here is a Google search for the definition of condominium: http://www.google.com.sg/search?q=define%3A+condominium&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a)
you will notice that the unit is owned by the individual, and the common areas are held - in common.

There is no other jurisdiction in the world that I am aware of that allows a person's private property to be confiscated by other private owners.

In my original posting, I explained that this is in effect a delegation to individual citizens of the state's right of eminent domain.

Even when exercised by the state, eminent domain is open to abuse. When it is left to the open market, it is definitely abuse.

The real economic issues are that no one will invest (equals maintain) their property if it is subject to expropriation by others at a time of others choosing. The essence of private property is that it is private, not subject to confiscation or encumbering.

How do you explain to people who are forced out of their homes, and who are not receiving enough money to buy a flat in the same neighborhood, that there is no economic effect?

How do you deal with tenants who are victims of the whole process? The en bloc law is silent on the rights of tenants, and the speculators are certainly not offering to offset the losses incurred by people forced to move and rent new flats at higher prices - if they can find a building still standing.

The Singapore law IS quite clear. It is just wrong.

Anonymous said...

Whatever, whine all you want but I'm very happy that my family is making lots of profits through all these en-bloc sales and I'm sure many others feel the same. En-bloc price > than individual unit price. We love that and we don't care what you say.

The Pariah said...

I'm a newbie at blogging. Just started one at:
www.singaporeenbloc.blogspot.com

I previously posted my comments as "The Pariah" on your blogsite as well as Dr Minority's blogsite.

Mr Hanafi, could you kindly e-mail me at:
SingaporeEnbloc@hotmail.com

I'd like to find out how to "cache" my blogspot so that it will show up in the Google search pls. And to share my other experiences to date on this en bloc issue.

Many thanks!

Waleed Hanafi said...

It seems that people do not have the courage of their convictions. First Bart JP has deleted his comments, presumably because he cannot create a compelling counter-argument, and Anonymous has demonstrated a delightful Singaporean version of "Screw you, I'm OK"

To make this comment chain more understandable, I have reposted Bart JP's original submissions as a public service.

==========
Hi,

I am not saying the on bloc rule is right or wrong.

But what I am interested to find out from you is where the social loss arises from the en bloc rule? Without making a value opinion as to whether it is right for the majority to decide on the future of a condo estate.

If one buys a bunglow, or terrace house, there would not be any issue with majority voting, would there? But if one buys a condo, then the rule of majority applies, since many facilities and amenities within the condo ares shared (unlike clothes or cars). Many condo estates have rules and regulations to prescribe what an owner can or cannot do to his own unit. Private ownership of a condo unit does not necessarily mean that rules and regulations need not be complied with.

I am interested because you stated the issue as an Economics 101 probem, implying there are real economics issues arising from en bloc. I think the laws are quite clear on majority voting. Property right assignment is quite clear, ie to the majority.

Once property right is assigned, there should not be any further social losses (Coase Theorem), unless of course there is another externality which I thought you were going to provide.

Regards



Posted by Bart JP to Ignorance is Curable at 22:55
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The Pariah said...

In the heat of an en bloc fever, we have lost sight of:

1. Meaning of "PRIVATE" property. There is nothing to stop an owner from selling his property unit individually due to his own cashflow or relocation needs.

2. Community versus Individual. Hence, the concept of "majority" versus "minority" is misplaced for private property. This "majority over minority" concept gains credence ONLY because there are communal societal needs of urban renewal and land use efficiency.

3. Just versus Unjust Laws. If an individual has to subordinate his private property rights for the larger good of the community, then we MUST NOT have laws and convenient regulatory gaps with sufficient ambiguity to feed a collective greed for the so-called "premium" from collective sales - that's the UNJUST LAW Singapore has in place since 1997. Indeed, it is high time that Singapore fine-tunes to an Equitable and Re-Balanced Basis (lots of alternative ideas for JUST LAWS in WWW.SINGAPOREENBLOC.BLOGSPOT.COM - if you have other ideas, pls share it too).

We each have different needs as Tenants, Investor-Owners or Owner-Occupants. Surely, we can create "space" (pun fully intended) for each other in a civil society???

I fully endorse what Waleed Hanafi says.

Anonymous said...

Bart, you must be a young Singaporean. When you grow up and get older, you might begin to understand how being a good citizen and paying your taxes is not good enough.

The government's meddling in the property market via en bloc legislation means some people lose their homes (as opposed to realise profit on their investment properties).

Everything in Singapore is for sale, whether you as an individual like it or not. This is our country!

Anonymous said...

No man is an island.

Me, I and Myself will get you no where. It's better to be now here.

Anonymous said...

en bloc is coming to our estate! i can't but help feeling so happpy... it's time for us to use that 3.5 million dollars to buy a couple of luxury cars and take a one month holiday around the world. YAY!!!!

Hmm.... BMW , Audi or Merc? Any suggestions?

Anonymous said...

People without a decent property will never be able to enjoy en bloc sales. This is a fact of life and they are suffering a disadvatange than those who have.
En bloc is good cos it gives more money to the people and more money will eventually circulate in the economy thus also indirectly helping those people without a decent property

Harry Yip said...

I fully agree with Mr. Waleed Hanafi regarding his views on en bloc development. It is the modern form of clearing squatters off their land to build new towns and infrastructures. The difference between the old and new way of acquiring land is that in the former, the squatter trades off his znic or attap roof hut with no running water or toilet for a HDB flat with modern amenities and in the latter, the displaced minority owner has to downgrade from a condo to a HDB flat and in a less desirable neighbourhood.

The concept of en bloc in its present form is good for realtors, developers, conveyancing lawyers, speculators, builders but definitely not for the minority owners. The number of rip-off owners far outnumbered the lucky ones, where the overly optimistic developers overpaid for the site.

En bloc game is truly a zero-sum game where when the developer wins, the owners must surely loses and vice versa.

I hope the government thinks harder to make the en bloc game a positive sum game, where everyone wins.

Harry Yip said...

An en bloc positive sum game would be one where the en bloc sale is only allowed when the plot ratio for the new development has been approved by the Master Plan to increase by at least 50%.

For example, a condo with a plot ratio of 1.4 will not be able to sell en bloc if the government has not given its approval to increase the plot ratio to 2.2. Because of the increase in plot ratio, everybody wins; the developer can build more units, the owners can buy a equivalent replacement in the same neighbourhood, the government gains by getting more revenue, etc.

If the plot ratio remains at 1.4, the only way for the developer to recoup his money and make profits is to build more and smaller units and at the sacrifice of the trees and greenery, which should be the ambience of the new condo.

I think the government should seriously look at this suggestion.